A newly issued callable convertible bond is selling at its $1,000 par. The bond has a...

 

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A newly issued callable convertible bond is selling at its $1,000 par. The bond has a 20-year maturity and carries a 12% annual coupon rate. Each bond can be converted to 31 shares before maturity. An otherwise same issue of ordinary debt selling at par would require a 11% coupon. The issuing company may call the bonds at $1071 when conversion value>$1155. The call must occur on issue date anniversary. Current share price PO = $19, with an expected annual growth rate (g) of 8%. Suppose the issuing company intends to call the bonds on the first anniversary date when the conversion value reaches $1155. QUESTIONS 1. When do you expect the bond to be called? [3 marks] The bond is expected to be called in year [ 2. What is the bond's implied yield to call (YTC)? [3 marks] YTC (in %, round to two decimal places) = [ 3. What is the bond's expected conversion value just before the company exercise its call option? [3 marks] Bond's expected conversion value (in S, round to two decimal places) = [ 4. What is the bondholders' expected yield-to-conversion? [3 marks] Expected yield-to-conversion (in %, round to two decimal places) = A newly issued callable convertible bond is selling at its $1,000 par. The bond has a 20-year maturity and carries a 12% annual coupon rate. Each bond can be converted to 31 shares before maturity. An otherwise same issue of ordinary debt selling at par would require a 11% coupon. The issuing company may call the bonds at $1071 when conversion value>$1155. The call must occur on issue date anniversary. Current share price PO = $19, with an expected annual growth rate (g) of 8%. Suppose the issuing company intends to call the bonds on the first anniversary date when the conversion value reaches $1155. QUESTIONS 1. When do you expect the bond to be called? [3 marks] The bond is expected to be called in year [ 2. What is the bond's implied yield to call (YTC)? [3 marks] YTC (in %, round to two decimal places) = [ 3. What is the bond's expected conversion value just before the company exercise its call option? [3 marks] Bond's expected conversion value (in S, round to two decimal places) = [ 4. What is the bondholders' expected yield-to-conversion? [3 marks] Expected yield-to-conversion (in %, round to two decimal places) =

Answer rating: 100% (QA)

1 When do you expect the bond to be called 3 marks The bond is expected to be called in year ANSWER ... View the full answer